6-35Solutions
6.39 (Quintana Company; working backward through the statement of cash flows.)
(amounts in thousands of US$)
QUINTANA
C
O
MPA
NY
Condensed Balance
S
hee
t
January 1, 2013
(amounts in thousands of U
S
$)
Current Assets:
Assets
Cash ……………………………………………………….. $ 20
Accounts Receivable …………………………………. 190
Merchandise Inventories ……………………………
28
0
I
n
v
es
tm
en
t
s
………………………………………………….
14
0
Total Current
Li
ab
ili
t
i
e
s
……………………….. $ 385
Following are T-accounts for deriving the solution. Entries (1)–(13) are
reconstructed from the statement of cash flows. Changes for the year are
appropriately debited or credited to end-of-year balances to get beginning- of-year
balances. T-account amounts are shown in thousands.
6.39 continued.
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20 190 280 (1)
200 30 (4) (4) 30 (5) 40 (2) 60
40 (5)
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6.40 (Swoosh Shoes, Inc.; interpreting the statement of cash flows.)
a. Swoosh Shoes’ growth in sales and net income led to increases of account
b. Swoosh Shoes increased its acquisitions of property, plant, and equipment to
c. Swoosh Shoes used cash flow from operations during 2011 and 2012 to
finance its investing activities. The excess cash flow after investing activities
d. Operating cash flows should generally finance the payment of
dividends. Either operating cash flows or long-term sources of capital should
6.41 (Spokane Paper Group; interpreting the statement of cash flows.)
a. Forest products companies are capital intensive. Depreciation is therefore a
6.41 continued.
b. Spokane Paper Group had substantial changes in its property, plant, and
c. For the three years combined, Spokane Paper Group reduced its long- term debt
and replaced it with preferred stock. The sales of forest products are
6.42 (Interpreting statement of cash flow relations.)
a. American Airlines-Property, plant, and equipment comprises a large
proportion of the total assets of American Airlines. Depreciation expense is a
major expense for the airline. The firm operated at a net loss for the year, but
6.42 continued.
b. American Home Products-Because of patent protection, pharmaceutical
companies tend to generate relatively high profit margins and significant cash
flows from operations. Although the manufacturing process for pharmaceutical
c. Interpublic Group-An advertising agency serves as a link between clients
desiring advertising time and space and various media with advertising time
and space to sell. Thus, the principal asset of an advertising agency is
6.42 continued.
d. Procter & Gamble-Procter & Gamble’s brand names create high profit
margins and cash flows from operations. Cash flow from operations is more
e. Reebok-Cash flow from operations for Reebok is less than net income plus
depreciation, a somewhat unusual relationship for a seasoned firm. Reebok
f. Texas Instruments-Like American Home Products and Upjohn (discussed
later), Texas Instruments invests heavily in technology to create a competitive
advantage. Patents and copyrights on computer hardware, software, and other
.42 f. continued.
operations of Texas Instruments grew significantly during the year. Cash flow
g. Limited Brands-Current assets and current liabilities dominate the balance
sheets of retailers. Thus, working capital management is of particular
importance. Limited Brands increased its current liabilities in line with
h. Upjohn-This problem includes Upjohn primarily to compare and contrast it with
American Home Products, also a pharmaceutical company. Both companies
6.43 (Fierce Fighters Corporation; interpreting direct and indirect methods.)
a. We think this is hopeless. We cannot write a coherent explanation of the decline
b. Some academics think that even the question is nonsense-that is, trying to
explain changes in the data which themselves explain changes in cash. The
statement of cash flows explains the change in the cash account from year to
In this case, the decline in cash flow from operations appears to result from a
decreased margin of collections from customers for sales. The focus must be on
c. A reader can more easily interpret the direct method. The
44. (Issues in manipulating cash flows from operations.)
a. This will increase cash flow from operations, assuming that had the
b. This will not increase cash flow from operations. It will conserve cash, but when
d. Not paying on time for items related to employment activities will, in the short
e. Same issues as in Part d. above.
f. This will increase cash flow from operations in the period of sale but will
6.39 continued.
Merch
a
n
d
is
e
C
a
s h
A
cc
o
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t
s
R
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va
b
l
e
I
n
v
e
n
t
o r i
es
20 190 280 (1)
200 30 (4) (4) 30 (5) 40 (2) 60
40 (5)
B
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g
s
A
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6.40 (Swoosh Shoes, Inc.; interpreting the statement of cash flows.)
a. Swoosh Shoes’ growth in sales and net income led to increases of account
b. Swoosh Shoes increased its acquisitions of property, plant, and equipment to
c. Swoosh Shoes used cash flow from operations during 2011 and 2012 to
finance its investing activities. The excess cash flow after investing activities
d. Operating cash flows should generally finance the payment of
dividends. Either operating cash flows or long-term sources of capital should
6.41 (Spokane Paper Group; interpreting the statement of cash flows.)
a. Forest products companies are capital intensive. Depreciation is therefore a
6.41 continued.
b. Spokane Paper Group had substantial changes in its property, plant, and
c. For the three years combined, Spokane Paper Group reduced its long- term debt
and replaced it with preferred stock. The sales of forest products are
6.42 (Interpreting statement of cash flow relations.)
a. American Airlines-Property, plant, and equipment comprises a large
proportion of the total assets of American Airlines. Depreciation expense is a
major expense for the airline. The firm operated at a net loss for the year, but
6.42 continued.
b. American Home Products-Because of patent protection, pharmaceutical
companies tend to generate relatively high profit margins and significant cash
flows from operations. Although the manufacturing process for pharmaceutical
c. Interpublic Group-An advertising agency serves as a link between clients
desiring advertising time and space and various media with advertising time
and space to sell. Thus, the principal asset of an advertising agency is
6.42 continued.
d. Procter & Gamble-Procter & Gamble’s brand names create high profit
margins and cash flows from operations. Cash flow from operations is more
e. Reebok-Cash flow from operations for Reebok is less than net income plus
depreciation, a somewhat unusual relationship for a seasoned firm. Reebok
f. Texas Instruments-Like American Home Products and Upjohn (discussed
later), Texas Instruments invests heavily in technology to create a competitive
advantage. Patents and copyrights on computer hardware, software, and other
.42 f. continued.
operations of Texas Instruments grew significantly during the year. Cash flow
g. Limited Brands-Current assets and current liabilities dominate the balance
sheets of retailers. Thus, working capital management is of particular
importance. Limited Brands increased its current liabilities in line with
h. Upjohn-This problem includes Upjohn primarily to compare and contrast it with
American Home Products, also a pharmaceutical company. Both companies
6.43 (Fierce Fighters Corporation; interpreting direct and indirect methods.)
a. We think this is hopeless. We cannot write a coherent explanation of the decline
b. Some academics think that even the question is nonsense-that is, trying to
explain changes in the data which themselves explain changes in cash. The
statement of cash flows explains the change in the cash account from year to
In this case, the decline in cash flow from operations appears to result from a
decreased margin of collections from customers for sales. The focus must be on
c. A reader can more easily interpret the direct method. The
44. (Issues in manipulating cash flows from operations.)
a. This will increase cash flow from operations, assuming that had the
b. This will not increase cash flow from operations. It will conserve cash, but when
d. Not paying on time for items related to employment activities will, in the short
e. Same issues as in Part d. above.
f. This will increase cash flow from operations in the period of sale but will